The Casa Grande City Council this week discussed borrowing to pay off its unfunded public safety retirement debt, as other Arizona cities and counties are doing. This has been a problem that never seems to go away, but the plan the city is discussing would put it to rest.
Arizona has been plagued with this issue for years, and the state agency that manages public safety pensions has had some problems in the past. Lawmakers struggled with getting a handle on it, but they did to a certain degree with a law and constitutional amendment approved by voters in 2016. That created a new retirement system for employees hired after that time that was easier to fund. However, debt for employees hired earlier has lingered, and the city continues to pay more than 7% interest on it.
What the City Council has discussed and likely will approve next month is borrowing more than $60 million to pay off the unfunded pension costs for the police and fire departments. The benefit is that the interest rate would be 2+% instead of 7+%. Savings over the next couple of decades would be more than $30 million. As part of the plan, a contingency fund would be set up to prevent future unfunded costs.
As we’ve said before, some states have unfunded pension costs that they likely will never be able to pay. Arizona is not the worst on the list, but it is far from the best in funding its pensions, and this problem has been a sticky one. At present, Casa Grande has future pension costs for police and fire that are about half unfunded, and interest is accruing. Changes at the state level have made a resolution possible, and city officials have taken a cautious approach that will complete that. The city has found a solution that will mean services to residents will not suffer.
— Donovan Kramer Jr.